China’s Growth Will Be Boosted by a Service-Driven Economy

2016-11-21

The transformation, upgrading and the enhancement of competitiveness of service industry are facing rigorous regulations, high threshold for market access, unfriendly policy environment and other restrictions for further development. Policy adjustment should focus on introducing competitions in service industry so as to improve its efficiency.

First, service industry is a powerful engine bolstering economic development and employment. In the post-crisis era, apart from export, which is an important development driver, China will rely more on domestic demand in order to maintain economic development. Compared with manufacturing industry, service industry could better meet domestic demand, especially consumer demand. Besides, the development of service industry will help manufacturing industry to realize industrial upgrading and the labor-intensified characteristics of service industry indicate that it could provide more job opportunities.

Second, unbalanced development and structural problems relating to service industry. The inadequate development of service industry can be seen in the following aspects: its share in GDP is still relatively low, its proportion in total employment is lagging behind, its structural upgrading is still at an initial stage, its industrial concentration disparity is dramatic, its international competitiveness remains weak, and its productivity is comparatively low and unbalanced. Chinese economy is undergoing a transition to market economy, whereas its market system is still incomplete and there are numerous institutional barriers. For instance, policies are always unfavorable towards service industry, service industry is facing many restrictions on market access, key industries are still dominated by state-owned enterprises, service industry providers lack effective and fair legal protection and service industry is still exposed to strong intervention by the government.

Third, some policy options on promoting service industry development. China needs to push forward the development of service industry through market-oriented reform across the board and formulate a national strategy for service industry development. The goal of service industry development should not only aim at maintaining high economic growth, but also at promoting efficiency and innovation ability as well as creating more jobs. Concrete reform tasks and priority orders include: 1. Reduce negative list and reform the restrictions on market access; 2. Identify the position of government and reform the regulatory institutions; 3. Deepen state-owned enterprises reform and provide institutional guarantee to ensure the diversification of service industry entities; 4. Enhance supporting reforms relating to government performance assessment, tax system and governmental procurement; 5. Accelerate the top-level design of service industry reform and the formulation of the 13th Five-Year Plan for the development of service industry.